Blackstone has secured a £76.5m three-year investment loan for the private equity firm’s final Chiswick Park office investment play, the unfinished and vacant Building 7, from BNP Paribas Corporate and Institutional Banking three months ahead of its practical completion.
BNP Paribas has priced the short-term senior loan around 250 basis points over three-month LIBOR and will at least hold a majority stake in the debt and consider a partial syndication on an opportunistic basis, in agreement with Blackstone.
Building 7, at 331,000 sq ft, will be the largest office building in the park when construction completes in the Spring, and is a fascinating speculative development office project which potentially could recalibrate future rental expectations for the wider Chiswick Park, as lease breaks and expires prompt routine re-gearing.
Expectations for Blackstone’s lease-up strategy have increased since construction work began in December 2012, driven by the economy’s improvement, the favourable supply and demand dynamic for offices outside central London as well as comparable of recent rents achieved in the wider business park.
For example, last month CoStar News revealed that IMG, the US-based global sports business which last year contemplated signing a pre-let on Building 7, subleased 73,000 sq ft at Chiswick Park’s Building 6 from Aker at £49 per sq ft.
If Blackstone manages to lease up the 331,000 sq ft Building 7 at an average rent of £50 psf, this would equate to £16.55m, not including any incentives.
Assuming yield compression – since China Investment Corporation’s circa £780m acquisition of the bulk of Chiswick Park 12 months ago and until the conclusion of the leasing strategy – allows Blackstone to sell Building 7 at a net initial yield of 5.5%, this would imply the fully let asset would be worth £300m.
More conservatively, if Blackstone achieved a future sale of Building 7 at a 6% net initial yield – again achieving £50 psf across the asset – the value of the largest Chiswick Park office block would be nearer £275m.
The scale of Blackstone’s success remains to be seen.
In a statement this morning announcing the BNP financing, Anthony Myers, head of real estate Europe at Blackstone, said: “Securing financing for Building 7 at Chiswick Park is a final step in the development of what has become an iconic site in West London. We are delighted to be working with BNP Paribas and look forward to the Building’s completion in a few months.”
Romain Simon, head of UK real estate finance at BNP Paribas, added: “We are delighted to have worked with Blackstone on the final addition to Chiswick Park. The high quality work environment, strong transport links and ‘Enjoy Work’ scheme all make Chiswick Park an attractive site generating demand from high quality tenants.
“This transaction also extends our relationship with Blackstone into the UK, and demonstrates our commitment to continuing to serve our financial sponsor client base.”